On July 12, 2017 the Code Committee of the Takeover Panel (the Code Committee) published consultation paper PCP 2017/1 (the Consultation).
The Consultation proposes amendments to various aspects of the Takeover Code (the Code) in relation to the sale by an offeree company of assets in competition with an offer or possible offer, as well as certain other amendments regarding the use of social media, ‘no intention to bid’ statements made under Rule 2.8 and the dispensations from Rule 9.
The Consultation closes on September 22, 2017.
Asset sales in competition with an offer
The Consultation notes that the Code Committee is concerned that an offeror or potential offeror may be able to circumvent certain provisions of the Code (which would otherwise operate so as to prevent further, increased, or revised offers) by instead purchasing the assets of an offeree company. In this context, the Code Committee has reviewed the application of the Code to transactions under which, in competition with an offer, the board of an offeree company agrees to sell some or all of the company’s assets to a third party, and the Consultation sets out a number of proposed amendments to the Code intended to address this concern.
Preventing an offeror from circumventing the Code by purchasing significant assets of an offeree company
Where a person is subject to Rule 2.8 (Statements of intention not to make an offer), Rule 12.2 (Competition reference periods) or Rule 35.1 (Delay of 12 months) they are, during the period for which the relevant rule applies, restricted from, amongst other things, making further offers for the offeree company or making any statement which raises or confirms the possibility that an offer might be made. The Consultation proposes amendments to prevent persons circumventing the application of these restrictions by purchasing, agreeing to purchase, or making any statement which raises or confirms the possibility they are interested in purchasing, assets which are significant to the offeree company (with relative values of more than 50 per cent normally being regarded as ‘significant’) during the period for which the relevant rule applies.
The proposed amendments would also have the effect of preventing:
- offerors that have made unqualified ‘no extension’ or ‘no increase’ statements from avoiding the application of Rules 31.5 and 32.2, as applicable (which are designed to restrict increased or revised offers being made by the offeror); and
- potential offerors that have made an unqualified statement regarding the terms on which they might make an offer from avoiding the application of Rule 2.5(a) (which provides that the potential offeror will be bound by any such statement if it subsequently makes an offer for the offeree company),
by purchasing, agreeing to purchase, or making any statement which raises or confirms the possibility they are interested in purchasing, assets which are significant to the offeree company for three months following the date on which (a) their offer lapsed (in the case of the first bullet above); or (b) they announced they had no intention of making an offer (in the case of the second bullet above).
Asset sales and other transactions subject to Rule 21.1 (Restrictions on frustrating action)
Where the board of an offeree company is considering selling assets to a third party, a number of Code provisions apply, in particular Rule 21.1 which (amongst other things and subject to certain exceptions) restricts the offeree company from taking frustrating action, selling or agreeing to sell assets of a material amount or entering into contracts outside the ordinary course of business unless the proposed action is approved by its shareholders in general meeting.
In the Consultation, it is proposed that Rule 21.1 be amended so as to:
- make it clear that shareholder approval will not be required under Rule 21.1 if the taking of the proposed action is conditional on the offer being withdrawn or lapsing;
- require that where shareholder approval is sought under Rule 21.1 for a proposed action (a) the offeree board obtains competent independent advice as to whether the financial terms of the proposed action are fair and reasonable and (b) the Takeover Panel is consulted regarding the proposed date of the general meeting;
- require that the offeree board sends a circular to shareholders containing specified information where (a) shareholder approval is being sought for a proposed action under Rule 21.1 or (b) such approval would be sought but for the fact that the taking of the proposed action is conditional on the offer being withdrawn or lapsing; and
- permit an offeree company to agree to pay an inducement fee to a counterparty to transaction to which Rule 21.1 applies, provided the fee is de minimis.
Sales of all or substantially all of the offeree company’s assets in competition with an offer
The Consultation set outs various amendments to the Code in relation to circumstances where, in competition with an offer or possible offer, an offeree company board states that it is proposing to sell all or substantially all of the company’s assets and return all or substantially all of the company’s cash balances to shareholders. These include proposals that, in these circumstances:
- any statement made by the offeree company quantifying the cash sum expected to be paid to shareholders if the offer lapses or is withdrawn should be treated as a quantified financial benefits statement and therefore subject to the reporting and other applicable requirements of Rule 28 (note that the definition of quantified financial benefits statement currently refers to statements quantifying financial benefits expected to accrue to the offeree company and so does not apply to statements quantifying financial benefits expected to accrue to its shareholders); and
- a purchaser of some or all of the offeree company’s assets should be put on a level playing field with a competing offeror (which would not be able to purchase shares at above its offer price) and therefore should be restricted from acquiring interests in shares of the offeree company during the offer period unless the offeree company has made a statement quantifying the cash sum expected to be paid to shareholders – even where such a statement has been made by the offeree company, interests can only be acquired to the extent that the price paid does not exceed the value per share that the offeree board has stated it expects to return to shareholders (if a range is stated, the price paid must not exceed the bottom of the range).
The Consultation also proposes the introduction of a new Note on Rule 21.3 (Equality of information to competing offerors) to clarify that, where the board of an offeree company commences discussions in relation to the sale of all or substantially all of its assets during an offer (or following the date on which the board has reason to believe a bona fide offer might be imminent) Rule 21.3 will, subject to certain caveats, apply to information given by the offeree company to the potential asset purchaser(s).
Other proposed amendments
The Consultation also proposes amendments in a number of other areas including:
- requiring persons who make a ‘no intention to bid’ statement under Rule 2.8 to specify in that statement the circumstances in which they reserve the right to set the statement aside;
- amending Rule 20.4 (which currently restricts the use of social media to publish information relating to an offer or a party to an offer) so that it only restricts publication of information relating to an offer and also amending it to permit publication via social media of videos that have been approved by the Panel in accordance with Rule 20.3 – these proposed changes essentially recognise the increased use of social media by parties to an offer to release information on themselves and that the current prohibition on the release of such information is unduly restrictive;
- amending Note 1 on Rule 19.1 to clarify that financial advisers are responsible for guiding their clients with regard to the publication of information via social media in the same way as information published by other means during the course of an offer; and
- amending Note 5 of the Notes on dispensations from Rule 9 to reflect existing practice that the Takeover Panel will consider granting a waiver in the context of an issue of new securities if independent shareholders holding shares carrying more than 50 per cent of the voting rights capable of being cast on a ‘whitewash’ resolution provide certain written confirmations.
(Takeover Panel, Asset sales in competition with an offer and other matters, 12.07.17)